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What is DCC?
- Defense and cost containment
- Includes all defense litigation and medical cost containment expenses
What is A&O?
- Adjusting and other
- Includes all claim adjusting expenses
What are the key factors on whether development methods can be used for adjustment expenses?
- If sufficient detail is available such that data can be organized by AY (or PY, UW Y,or RY)
- If the expenses tend to track accident (PY, UY,RY) or are more dependent on CY
Describe the Multiplicative approach for the Ratio of paid ALAE-to-paid clm dvmt
- Project ultimate claims (using appropriate technique - text uses paid & rpt dev)
- Develop ratio of paid ALAE-to-paid claims to ultimate
- Ultimate ALAE = Ultimate Claims * Ultimate Ratio of paid ALAE-to-paid claims
What is the assumption with the multiplicative approach for ALAE?
Relationship btwn ALAE & Clms is relatively stable over experience period
List 3 Adv and 2 Disadv of Multiplicative ALAE approach
- 1. Recognizes the relationship between ALAE and claims
- 2. Ratio development factors tend not to be as highly leveraged
- 3. Easy to interject actuarial judgment in projection analysis
- 1. Any error in estimate of ultimate claims could affect estimate of ultimate ALAE
- 2. For some lines, large amounts of ALAE may be spent on CNP
- Important to review large claims and maybe project estimates separately
Describe the Additive approach for the Ratio of paid ALAE-to-paid clm dvmt
- 1. Project ultimate claims (using appropriate technique - text usespaid and rpt dev)
- 2. Develop ratio of paid ALAE-to-paid claims to ultimate
- **Take differences between ratios at successive ages and select
- **Age-to-ultimate factor is then the cumulative sum from age to ultimate
- 3. Ultimate ALAE = Ultimate Claims * Ultimate Ratio of paid ALAE-to-paid claims
What is an advantage of additive ALAE approach?
More stable approach when ratios are very small at early maturities